August 2007
Volume 78, Number 8   

Car ads must adhere to Regulation Z

Recently the Kentucky Automobile Dealers Association sponsored seminars around the state to help educate everyone dealing with auto advertising. There were many good points brought up during the seminar that I attended.

Regulation Z lets the consumer know terms of credit offered for a specific motor vehicle. If an advertisement contains a triggering term, then it must also have certain disclosures to go along as explanation. Triggering terms include:

• Amount of any down payment
• Amount of any payment
• Number of payments or period of repayment
• The amount of any finance charge.

If any of the triggering terms appear, then the ad has to have all of these disclosures:

• Amount or percentage of the down payment
• Terms of repayment
• Annual percentage rate - using that term or the term APR. If the APR can be increased after the purchase then that has to be told as well.

The following illustration can be found on the Federal Trade Commission Regulation Z website: "Suppose an auto dealer has "60 month financing" available on various types of vehicles. (NOTE - the period of repayment is a triggering term). The dealer could comply with the law by stating the credit terms available with 60-month financing based upon an automobile that a consumer could purchase on those terms as follows: 60-month financing available. Example: 1988 Olds Ciera 20 percent down. $289 per month, 11 percent APR. On Approved Credit."

If there are multiple vehicles in an ad and each one has a separate triggering term - such as a monthly payment - that may vary from vehicle to vehicle but the down payment, APR and the number of payments is the same then just one example, labeled "example," is needed as clarification for the triggering term. If the APR, down payment or number of payments vary, however, then separate examples are needed to clarify.

It is not acceptable for a range in the number of months to be used. Dealers should not use terms "from 60-84 months." The specific number of payments should be used that applies to the particular vehicle advertised. If the ad is only promoting the APR then it could be used to show the range of APRs alone.

If auto dealers are found to be in violation of state advertising laws, then a fine could be issued for $500 for a used car dealer or $1,000 for a new car dealer. Each advertisement (mailer, newspaper, coupon, etc.) can be prosecuted as a separate offense.

For instance if your newspaper has an insert that went to 5,000 readers and that insert has false or incomplete information, the fine could be issued at $500 multiplied by 5,000 inserts. That's why it is important for us to stay as informed on the laws as possible so that we can help our clients.

Even when an advertising agency is being used, it is important that their information is accurate. It is still the dealer's ad and the responsibility, as well as the fine, could still fall on the dealer. Always have the ad reviewed by a legal team before it runs in the paper. The record fine in Kentucky for dealer advertising has been $30,000.

Laws of concern for Kentucky include KRS 190.040 which prohibits false or misleading advertising. Regulation 605 KAR 1:190 talks about dealer advertising. Federal laws include the FTC's Regulation M for leasing requirements, the FTC's Regulation Z which focuses on sale ad requirements, and 31USC 333 for the use of symbols or words that imply IRS or US Treasury Department involvement.


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